Non-price Factors in CASA Trade: Exploring the Relevance of Trade Costs

The Central Asian and South Asian (CASA) economies are experiencing an escalation in trade costs, visible at the border crossings and domestically too. The need for trade documentation for exports and business process registration influences the scale and composition of exports, amplifying transaction costs and thereby reducing overall exports. This study assumes the export of two types of products, namely, differentiated and homogeneous, and employs data from the UNESCAP-World Bank’s bilateral comprehensive trade costs database to ascertain the impact of trade costs. The findings of the impact, however, vary across commodities depending on the extent of product diversity. The findings reveal that in the case of diversified products, the absence of price data because of unpredictability leads to vulnerability to export signatures. The regression results demonstrate that each extra signature reduces overall exports by 4.3% and is akin to raising the importer’s duty by 5 percentage points. Furthermore, the impact of each extra signature diminishes exports of differentiated commodities by an extra 4–5% relative to exports of homogeneous commodities, while the firm registration procedures only affect differentiated products. The role of non-tariff barriers also accounts for up to 90% of trade costs, and therefore, in CASA, interregional trade costs surpass those of intraregional trade. The proliferation of permits, licences, and certificates affects both the global and regional competitiveness of firms in these regions and leaves small businesses unable to navigate the complexities of these rules. Moreover, stockpiles of sensitive and restricted goods intended to protect local producers sometimes contradict the realms of intra-industry trade opportunities, as in the case where ad valorem duties for agricultural commodities often receive far higher protection than those on non-agricultural products, hindering regional economic progress. In CASA, Central Asia and Afghanistan are ranked among the lowest 3% internationally for cross-border trade facilitation. Tackling these trade costs is not only an economic imperative but also a crucial measure to unleash regional trade prospects that may promote cooperation, improve market access, and ultimately propel forward equitable growth in these strategically crucial regions.